Five Persistent Myths About China's Banking System‪.‬

Of all the various topics and issues facing observers of the Chinese economy, it is safe to say that none arouses more spirited debate than the role of the financial system, and in particular the state of Chinese banks. Is the mainland on the verge of a financial crisis? Has the recent economic overheating created a new flood of bad loans? Do banks know how to allocate capital, or are they simply quasi-fiscal agencies acting at the mercy of the government? And does the rapidly opening financial system represent a gold mine or a "black hole" for foreign investors? The answers to these questions are not always straightforward, but in our experience the truth lies very much away from the extremes so often presented in the financial press. Chinese banks are by no means "out of the woods," first and foremost because they remain state-owned institutions, but they are now well advanced from their situation only a decade ago. This means that the economy is protected from the risk of a financial crisis--but, on the other hand, the banking sector is more a sunset industry than an exciting growth sector.